PBX, IP PBX, VOIP: Understanding the Basics of Business Phone Systems

If you have ever called a business and selected numbers for menu options or dialed a specific office extension, you have used a Private Bank Exchange (PBX) telephone system.

In the early years of telephone lines, calls went through public switchboards, where operators manually directed them to the correct receivers. In the mid-20th century, the demand grew, and multiple lines were installed to handle the growing number of phone calls. Businesses began using separate lines for each internal department. However, they still had to pay for each expensive call, including calls made between departments, which cost just a much as a call made across town. As these costs grew, the need for a better solution was soon apparent.

This sparked a business telephone revolution that would continue to develop through the 21st century and into the digital revolution.

A history of PBX systems

The first PBX system was developed by lawyers in the 1960s and required a human operator to manually direct calls. By hiring their own operators and purchasing or renting a small number of telephone lines and blocks of switchboards, companies were able to use a large number of phones for less.
The fact remained, phone calls still required a human operator. Automated switchboards had been used by public services for several decades, but private businesses were hesitant to use this often unreliable technology.

In the 1970’s automated switchboards saw the addition of superconductors, making them faster and more trustworthy.

Without the need for a human operator, PBX systems became even more affordable and popular. As businesses moved from using public services, they discovered more perks offered by their new systems, including extension dialing, hunt groups, and call forwarding.

As computers developed, an update to PBX appeared: the Time Division Multiplexing (TDM) system. This system, which is still the telephone system most commonly used by corporations today, was built much like a desktop computer. It was designed as a large cabinet that housed a hard drive, central processing unit (CPU), random access memory (RAM), and operating system. Businesses could easily add hold music or additional telephone lines by purchasing new boards to add to the cabinet, which was smaller than previous systems.

Unfortunately, this new system could be a costly investment. To move from analog to digital, every phone needed a TDM-compatible replacement. Those easily added boards were only available with 16 lines, which forced companies to buy more lines than they needed.

Then came the internet, and with it, a new development to join the PBX and TDM systems.

What is an IP PBX system?

Before the internet, all phone calls went through the phone company’s network, which required analog phones on each end. Then, beginning in the 1990s, developers created the ability to channel calls through the internet’s data network. This is known as Voice Over Internet Protocol (VoIP).

VoIP works in the following sequence:

1. Analog telephone calls are converted to digital signals.
2. The digital signals are translated into Internet Protocol (IP) packets.
3. The IP packets are converted back to telephone signals, and received by a telephone on the other end.

VoIP makes voice and data networks converge: users had access to the internet, analog phone calls, and VoIP phone calls all through the same line.

This new system was revolutionary for many businesses, but it was still an investment. Companies had to once again replace their equipment and software, this time with expensive IP systems and phones. Despite the expense, the IP PBX system was an advantageous option for many businesses. Since it was less costly than a PBX system, an option only affordable to large corporations, any company could use an IP PBX system. The system wasn’t cheap, but it saved on overhead costs and provided certain features which made it a valuable investment for companies of all sizes.

The evolution of VoIP technology

As the internet continued to develop, new possibilities arose. Instead of restricting calls to IP PBX equipment, VoIP systems allowed communication between computers, phones, and IP phones. This new system was cloud-based and hosted by an outside provider. It functioned as an application, offering multiple channels of communication. Users could video chat, share data, instant message, and more. They could do so from anywhere, as long as they had on hand a device connected to the internet.

Pros and Cons of PBX, IP PBX, and VoIP technology

In today’s digital world, many would expect VoIP systems to be more popular than PBX and IP PBX systems, but that isn’t always the case. Each system has its advantages and disadvantages, which make them better suited for certain situations. These pros and cons will help you understand which system would be best for your company.

PBX Pros:

Reliability: PBX systems still operate through phone lines, which can protect your communications from power outages and internet failures. Some phone lines still operate during power outages, allowing you to keep your phone lines up.Accessibility: Companies that use PBX systems house their own equipment and employ their own IT staff to maintain and run the system. This gives them full control and access to the equipment and software.Sound Quality: Calls travel through landlines, which makes for the best sound quality and reliability over time.Convenience: Because PBX systems existed for so long, many companies already have the equipment they need. Instead of paying for and installing new hardware, these companies can continue to use what they have. For companies without internet access, a PBX system is the best option.

PBX Cons:

Availability: Though PBX systems still subsist, digital technology has almost completely replaced analog. Unless a company already has a PBX system in place, this option isn’t available.Cost: The cabinets that house PBX systems are expensive, but necessary for operation. Even after paying for the equipment, companies also have to pay IT salaries and monthly charges.Limitations: PBX systems have a limit of phone numbers and lines, and any additional ones can be costly. Moreover, calls can only go through specific devices within the system, instead of allowing for flexible call options.

IP PBX Pros:

Usability: IP PBX systems require less technical knowledge to use and maintain. Companies won’t need dedicated IT departments or sophisticated training to use and update their systems.Cost: PBX systems can have high monthly subscription charges. IP PBX systems can lower monthly operating costs, even if there are a high number of users. Support, upgrades, and maintenance are usually inexpensive and companies don’t have to sign contracts with a hosting company.Phone Mobility: IP PBX systems are IP based, which allows users to move phones to different connections without issue, much like PCs.Extensions: To add a remote or branch extension to a system, users just need another IP phone and internet connection. This allows companies to have phone access from home and other locations.

IP PBX Cons:

Unreliability: An IP PBX system is only as reliable as the internet connection it uses. If a company loses power, has equipment malfunctions, or loses their internet connection, the telephone system can’t work.Sound Quality: Similarly, if a company’s internet signal and broadband strength is low or faulty, calls will lose sound quality. If the internet network provider is unable to support a high quality of sound on the local network, communication will be unreliable.Limited Options: An IP PBX system is hosted onsite. Though this gives the company more control, it also limits them to the resources they can access and afford.Equipment: Companies still have to use IP phones to operate this system.

VoIP Pros:

Cost: The lack of required equipment and maintenance reduces costs. Calls (even long-distance and international) don’t incur additional charges. Fixed monthly subscription fees allow companies to budget appropriately.Flexibility: Receive calls from any location on any device. Calls can go to a cell phone or computer when the user is out or at home. Therefore, scheduling and communication become a simpler matter.Disaster recovery: Calls won’t go through without internet, but the system can still operate in an emergency. Because of remote hosting, calls are accepted and sent to voicemail.Features:These include conference calling, caller identification, call waiting, voicemail options, call transfer, call queues, and interactive voice response.Size: Bandwidth limits the maximum amount of numbers and users. Companies can also use multiple local and international numbers on the same system.Sound Quality: Though sound quality relies on a good internet connection, fiber optic cables eliminate any quality issues.

VoIP Cons:

Instability: Like an IP PBX system, VoIP systems are dependent on the internet. In the case of an internet or power outage, calls won’t go out.

Other factors to keep in mind when choosing between PBX, IP PBX, and VoIP systems

What does this mean for you?
If you are looking for a new phone system, whether for the first time or as an upgrade of your current installation, it is important to know your options. To get an idea of which system is best for your company, use the tips below to evaluate your phone communication options.

What is your current setup?
If you are already using a PBX or IP PBX system and it’s affordable and working for your company, you may want to stick with it. Your equipment and software were expensive and may be worth the use if it functions well with your company and location.
If you don’t have a system, a VoIP or IP PBX system is your best option. Should you have the funds to purchase the IP equipment and software and want to host your own system, consider an IP PBX system. If you want to avoid purchasing new equipment and you can afford monthly payments, look into a VoIP system.

Do you have reliable internet access?
Both the IP PBX and VoIP systems rely heavily on your internet access. Before integrating either system, make sure you have enough bandwidth and a strong enough signal to handle your calls.
If you don’t have reliable internet access, an IP PBX system is your best option. You’ll be able to use your system through gateways to your phone line, though a strong internet connection would probably be an asset.

Does your professional activity require a lot of travel?
If you and your employees are often out of the office, traveling among customers and worksites, you will probably want a VoIP system. This system will allow you to receive calls on your computers and cell phones instead of office extensions. Even if you are moving around town, your customers will be able to reach you when they need you.

Hopefully you are now more savvy about your choices in terms of business phone systems. Let us know what you thought!